Citadel SMaRT Fund
TSX : CRT.UN

Citadel SMaRT Fund

August 26, 2005 16:16 ET

Citadel SMaRT Fund: 2nd Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 26, 2005) - Citadel SMaRT Fund (TSX:CRT.UN):

For the six months ended June 30, 2005 (unaudited)



Investment Highlights

Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2005 2005 2004 2004 2004
------------------------------------------------------------------------
Net Asset Value per
Unit $ 32.51 $ 31.54 $ 31.01 $ 33.22 $ 30.34
Market Price per Unit $ 31.06 $ 29.89 $ 30.30 $ 31.33 $ 28.70
Trading Premium
(Discount) (4.5%) (5.2%) (2.3%) (5.7%) (5.4%)
Quarterly
Distributions
per Unit $ 0.624 $ 0.624 $3.274(1) $ 0.624 $ 0.624
12 Month Trailing
Yield 16.6% 17.2% 17.0% 8.0% 8.7%
Market
Capitalization
($ millions) $ 101.9 $ 100.3 $ 108.1 $ 123.1 $ 115.9
------------------------------------------------------------------------

(1) Includes a special distribution of $2.65 per unit to unitholders of
record on December 31, 2004 and paid January 31, 2005.


Investment Manager Report

At the end of March 2005, rising interest rate and inflation concerns dominated the income trust market which resulted in a sell-off similar to that experienced in the spring of 2004. Like 2004, the sell-off was short lived as positive year over year funds flow and declining bond yields boosted income trust valuations. With continued strength in oil and natural gas prices, the energy trust sector delivered a strong 8.6% total return in the second quarter of 2005. As a result, the S&P/TSX Income Trust index produced a total return of 7.7% over the second quarter of 2005, again outperforming the S&P/TSX Composite index's return of 3.6%. On a net asset value basis, Citadel SMaRT generated a 5.1% total return. On a unit price basis, Citadel SMaRT's improved unit price helped boost its total return to 6.1% in the second quarter of 2005.

The Fund sold its position in APF Energy and unwound a portion of the forward agreement in order to fund the April 30, 2005 unit redemption, realizing gains of $0.6 million and $6.5 million respectively.

With the outlook for continuing strong oil and natural gas prices, the Fund expects to maintain its current distribution level and grow its net asset value per unit in 2005.

Management's Discussion & Analysis (August 18, 2005)

Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements for the three months ended June 30, 2005, and the audited financial statements and MD&A for the year ended December 31, 2004.

As in the prior quarter, strong commodity prices continued to support high valuations of the oil and gas royalty trusts resulting in a net asset value per unit of $32.51 at the end of the second quarter of 2005 up from $31.54 per unit at the end of the first quarter. Due to lower unit redemptions during the quarter, the Fund's total net assets at June 30, 2005 remained consistent with the March 31, 2005 level of $106 million.

Citadel SMaRT's unit price rose during the quarter from $29.89 at March 31, 2005 to $31.06 at June 30, 2005. During the quarter, unitholders exercised their redemption right and redeemed 76,485 units for cancellation at April 30, 2005.

Total revenue was $1.9 million for the three months ended June 30, 2005 compared to $2.8 million in the same period in 2004 as the Fund's asset base decreased due to unit repurchases and redemptions over the past year. Revenue for the second quarter of 2005 was comparable to revenue in the first quarter of $2.0 million. Administrative and investment manager fees, as well as trailer and service fees, of $0.31 million and $0.19 million respectively, declined in the second quarter of 2005 as net assets decreased over the year. General and administrative costs in the second quarter were $0.06 million compared to $0.11 million in the comparable period in 2004. Expenses totaled $0.56 million in the second quarter of 2005 compared to $0.70 million in the second quarter of 2004. Net investment income was $1.4 million or $0.41 per unit for the three months ended June 30, 2005 compared to $2.1 million or $0.51 per unit for the same period in 2004. Distributions paid in the second quarter of 2005 were $0.624 per unit which was consistent with the same period last year.



Portfolio Holdings
------------------------------------------------------------------------
Forward Agreements (38%)
Oil & Gas Royalty Trusts (59%)
Cash & Term Deposits (3%)
------------------------------------------------------------------------


During the second quarter, the Fund realized gains of $0.6 million on the disposition of royalty trusts in addition to realized gains of $6.5 million on the partial unwind of its forward agreement. Unrealized gains of $1.1 million on the royalty trust portfolio coupled with unrealized losses of $4.4 million on the forward agreement contributed to overall results of operations of $5.2 million or $1.56 per unit for the second quarter of 2005 compared to negative $1.5 million or negative $0.37 per unit for the same period in 2004. Unrealized losses on the royalty trust portfolio and the forward agreement of $2.2 million and $4.5 million respectively contributed to the lower results of operations in the second quarter of 2004.



Citadel SMaRT Fund
Statement of Net Assets

(Unaudited)

As at June 30, 2005 December 31, 2004
------------------------------------------------------------------------
Assets
Investments, at market $ 104,171,896 $ 118,015,038
Cash and term deposits 2,820,765 2,323,907
Revenue receivable 539,335 744,429
Accounts receivable - 19,624
Prepaid expenses 8,753 -
------------------------------------------------------------------------
107,540,749 121,102,998
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities
Accounts payable 251,749 264,404
Distributions payable 682,144 10,197,918
------------------------------------------------------------------------
933,893 10,462,322
------------------------------------------------------------------------
Net Assets $ 106,606,856 $ 110,640,676
------------------------------------------------------------------------
------------------------------------------------------------------------
Units outstanding 3,279,538 3,568,201
------------------------------------------------------------------------
------------------------------------------------------------------------
Net asset value per unit $ 32.51 $ 31.01
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel SMaRT Fund
Statement of Operations

(Unaudited)

Three Months Ended Six Months Ended
June 30 June 30
For the periods ended 2005 2004 2005 2004
------------------------------------------------------------------------
Revenue
Investment income $ 1,924,583 $ 2,822,916 $ 3,928,434 $ 5,909,923
------------------------------------------------------------------------
1,924,583 2,822,916 3,928,434 5,909,923
------------------------------------------------------------------------
Expenses
Administrative
and investment
manager fees 307,484 372,631 624,453 785,006
Trailer and
service fees 188,202 217,377 384,373 473,833
General and
administration
costs 61,470 114,291 130,330 177,055
------------------------------------------------------------------------
557,156 704,299 1,139,156 1,435,894
------------------------------------------------------------------------
Net investment
income 1,367,427 2,118,617 2,789,278 4,474,029
Net realized gain
on investments 581,799 1,087,180 5,464,791 3,002,880
Net realized gain
on forward
agreement 6,474,276 1,969,636 8,338,053 3,076,635
Net change in
unrealized gain
(loss) on
investments 1,125,721 (2,184,598) (1,560,299) (2,105,760)
Net change in
unrealized gain
(loss) on forward
agreement (4,393,645) (4,528,271) (5,744,293) (3,067,094)
------------------------------------------------------------------------
Total results
of operations $ 5,155,578 $(1,537,436) $ 9,287,530 $ 5,380,690
------------------------------------------------------------------------
------------------------------------------------------------------------
Results of
operations
per unit:
Net investment
income $ 0.41 $ 0.51 $ 0.83 $ 1.02
Net realized gain
on investments 0.18 0.26 1.62 0.68
Net realized gain
on forward
agreement 1.96 0.47 2.48 0.70
Net change in
unrealized
gain (loss) on
investments 0.34 (0.52) (0.46) (0.48)
Net change in
unrealized
gain (loss) on
forward agreement (1.33) (1.09) (1.71) (0.70)
------------------------------------------------------------------------
$ 1.56 $ (0.37) $ 2.76 $ 1.22
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel SMaRT Fund
Statement of Changes in Net Assets

(Unaudited)

Three Months Ended Six Months Ended
June 30 June 30
For the periods ended 2005 2004 2005 2004
------------------------------------------------------------------------
Net Assets -
beginning of
period $105,862,764 $139,475,443 $110,640,676 $148,254,022
Operations:
Net investment
income 1,367,427 2,118,617 2,789,278 4,474,029
Net realized
gain on
investments 581,799 1,087,180 5,464,791 3,002,880
Net realized
gain on forward
agreement 6,474,276 1,969,636 8,338,053 3,076,635
Net change in
unrealized gain
(loss) on
investments 1,125,721 (2,184,598) (1,560,299) (2,105,760)
Net change in
unrealized gain
(loss) on
forward
agreement (4,393,645) (4,528,271) (5,744,293) (3,067,094)
------------------------------------------------------------------------
5,155,578 (1,537,436) 9,287,530 5,380,690
------------------------------------------------------------------------
Unitholder Transactions:
Distributions
to unitholders (2,062,341) (2,603,939) (4,200,632) (5,468,519)
Repurchase of
trust units (2,349,145) (12,779,889) (9,120,718) (25,612,014)
------------------------------------------------------------------------
(4,411,486) (15,383,828) (13,321,350) (31,080,533)
------------------------------------------------------------------------
Net Assets -
end of period $106,606,856 $122,554,179 $106,606,856 $122,554,179
------------------------------------------------------------------------
------------------------------------------------------------------------
Distributions
per unit $ 0.624 $ 0.624 $ 1.248 $ 1.248
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel SMaRT Fund
Statement of Investments

(Unaudited)

As at June 30, 2005
------------------------------------------------------------------------
% of
Cost Market Market
------------------------------------------------------------------------
Oil & Gas Royalty Trusts
Acclaim Energy Trust $ 5,965,837 $ 8,575,060
Advantage Energy Income Fund 1,643,113 3,714,240
APF Energy Trust - -
ARC Energy Trust 6,055,050 10,568,200
Bonavista Energy Trust 549,696 869,120
Enerplus Resources Fund 3,594,731 5,990,400
NAL Oil & Gas Trust 3,110,307 5,001,750
Paramount Energy Trust 4,515,578 6,123,200
Petrofund Energy Trust 2,258,822 4,699,500
Shiningbank Energy Income
Fund 5,272,729 8,857,050

Vermilion Energy Trust 3,810,750 7,008,000
Viking Energy Royalty Trust 1,685,203 1,947,000
------------------------------------------------------------------------
38,461,816 63,353,520 59.2%
Forward Agreement 27,293,446 40,818,376 38.2%
------------------------------------------------------------------------
Investments 65,755,262 104,171,896 97.4%
Cash and Term Deposits 2,820,765 2,820,765 2.6%
------------------------------------------------------------------------
Total $ 68,576,027 $ 106,992,661 100.0%
------------------------------------------------------------------------
------------------------------------------------------------------------

Citadel SMaRT Fund
Notes to the Financial Statements
(Unaudited)


THE TRUST

Citadel SMaRT Fund (the "Fund" or "Citadel SMaRT") is an open-end investment trust established under the laws of Alberta pursuant to a Declaration of Trust dated July 19, 2001. The Fund commenced operations upon the completion of its initial public offering on September 14, 2001. The term of the Fund continues until December 31, 2013 or such earlier or later date as the unitholders may determine in accordance with the Declaration of Trust.

The Fund's investment objectives are to provide tax advantaged monthly distributions derived from a managed portfolio of royalty trust investments combined with capital protection of 70% of the original unit price through the use of forward sales of securities. Citadel SMaRT's distribution policy is to pay monthly cash distributions targeted at $0.208 per unit.

SIGNIFICANT ACCOUNTING POLICIES

These interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include estimates and assumptions by management. Actual results may differ from these estimates. Significant accounting policies used in these statements include:

a) Cash and cash equivalents consist of cash on account and short term bankers' acceptances with maturities of less than 90 days on acquisition.

b) Investments are stated at market values based on closing market quotations. Average cost is used to compute realized and unrealized gains or losses on investments and on the forward agreement. Investment transactions are recorded on the trade date. The Forward Agreement is recorded at its fair value on the valuation date.

c) The Fund qualifies as a unit trust within the meaning of the Income Tax Act (Canada). Provided the Fund distributes to its unitholders its net income for tax purposes, the Fund will not generally be liable for income tax under Part 1 of the Canadian Income Tax Act.

d) Dividend income is recorded on the ex-dividend date, distribution income is recorded on the ex-distribution date and interest is recognized as earned.

UNITHOLDERS' CONTRIBUTION

The authorized capital of the Fund consists of an unlimited number of trust units which are transferable redeemable units of beneficial interest.

The Fund has a mandatory repurchase program whereby units offered for sale at a discount to the Fund's net asset value per unit of greater than 5% are repurchased for cancellation, subject to a maximum of 1.25% of the total number of units outstanding at the beginning of each calendar quarter. During the quarter ended June 30, 2005, the Fund repurchased no units (June 30, 2004 - 18,800 units) under this program.

Unitholders of the Fund have the right to redeem their units on a quarterly basis. Effective February 1, 2003, unitholders who redeem will be entitled to a redemption price per unit equal to the Fund's net asset value per unit less $0.80 per unit. The redemption valuation dates are the last day of January, April, July and October of each year. On April 30, 2005, unitholders redeemed 76,485 units at a price of $30.14 per unit (April 30, 2004 - 400,060 units at a price of $29.94 per unit). Subsequent to June 30, 2005, a further 46,616 units were redeemed at $33.68 per unit pursuant to the July 31, 2005 redemption date.

FORWARD AGREEMENT

The Fund has entered into Forward Agreements with two unrelated counterparties pursuant to which these counterparties have agreed to pay the Fund $17.50 for each unit outstanding on the Fund's termination date in exchange for the Fund delivering to the counterparties the equity securities in a fixed portfolio. The securities in this portfolio had a cost of $27.3 million at June 30, 2005 ($22.5 million at December 31, 2004). These securities have been pledged to the counterparties as security for the obligations of the Fund under the Forward Agreements. The Forward Agreements are each direct obligations of the counterparties both of which have investment grade credit ratings. The Forward Agreements may be settled in whole or in part by cash or by physical delivery of the securities at the option of the Fund.

ADMINISTRATIVE AND INVESTMENT MANAGER FEES

Citadel CPRT Management Ltd. is the administrator of the Fund and Bloom Investment Counsel, Inc. is the investment manager of the Fund. They are entitled to receive fees based upon 1.1% of the average daily net asset value of the Fund, payable in cash monthly in arrears. During the second quarter of 2005, the Fund recorded an expense of $307,484 (June 30, 2004 - $372,631) in respect of these fees.

TRAILER AND SERVICE FEES

The Fund pays a trailer fee to investment dealers calculated and payable quarterly in arrears at an annual rate of 0.4% of the net asset value of the Fund held by unitholders in accounts with investment dealers. An annual service fee of 0.43% of the guaranteed value of the Forward Agreement is also payable by the Fund to the counterparties of this agreement. For the quarter ended June 30, 2005, the Fund recorded an expense of $104,945 related to the trailer fee (June 30, 2004 - $129,254) and $83,257 related to the service fee (June 30, 2004 - $88,123).



CORPORATE INFORMATION
Administrator
Citadel CPRT Management Ltd.
Suite 3500, 350 - 7th Avenue S.W.
Calgary, Alberta T2P 3N9
Telephone: (403) 261-9674
Fax: (403) 261-8670
Website: www.citadelfunds.com

Investment Manager
Bloom Investment Counsel, Inc.
Suite 1710, 150 York Street
Toronto, Ontario M5H 3S5

Trustee
Computershare Trust
Company of Canada
6th Floor, 530 8th Avenue S.W.
Calgary, Alberta T2P 3S8

Stock Exchange Listing
Toronto Stock Exchange
Trust units: CRT.un


Contact Information

  • Citadel SMaRT Fund
    Joe MacDonald
    Executive Vice President, Sales and Marketing
    1-877-261-9674
    Website: www.citadelfunds.com